Over-50s clueless about pensions

The majority of middle-aged people in Ireland have little or no idea of their pension entitlements, a study shows.

A joint research project carried out by the ESRI and Trinity College Dublin found that two-thirds of people who are aged over 50 and who are members of pension schemes are unable to provide basic information on their future pension benefits.

Two thirds are ignorant either of the amount or the form of payment while 55% do not know what they would be paid on retirement.

The results of the study, by Alan Barrett and Brendan Whelan of the ESRI, and Irene Mosca of Trinity, also reveal that men are better informed than women.

The research shows 53% of men do not know the amount they would be paid but this rises to 60% for women. There was also a difference between those in defined benefit schemes and those in defined contribution schemes.

Half of those in defined benefit schemes could not say what percentage of their salary they would get on retirement while the corresponding figure for those in defined contribution schemes is 70%.

The research also reveals that employees are more knowledgeable of their future benefits than those who are self-employed and, among the latter group, farmers are the least informed of all. Overall, public service employees had the greatest level of knowledge about their pension entitlements.

“Such low levels of information on pensions are a source of concern,” said Mr Barrett, director of the ESRI, who acknowledged that he was surprised at the results even though actuaries he had spoken to were not.

“It should be noted that the results in this study refer to people aged over 50 who are enrolled in pension schemes. Hence, they are likely to be among the best-informed people in the population,” he said. “If this study was replicated for other groups, the lack of knowledge would probably be greater.”

The research group has raised the prospect of the Government taking over the operation of pension schemes and making them mandatory for everyone earning an income.

“With ageing populations, the pensions systems in Ireland and Britain are under pressure and there needs to be some way of getting people to invest more in their pensions,” said Mr Barrett.

“We already have mandatory contributions for pension with PRSI. Our system is good at keeping people out of poverty in retirement but not so good at ensuring something better than that.”

Mr Barrett also pointed to ‘auto-enrolment’, a system that automatically enrols an employee in a company scheme, with the option to withdraw at any stage. The evidence from countries using this system is that, once a person joins a pension scheme, they tend to stay in.

“There are policy choices,” Mr Barrett added. “You can give individuals tax breaks, as we do now, or go the mandatory route.

“If you have a mandatory system, it should be run by the Government as it is in a better position to smooth things out and can more easily absorb risks.”


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